iraq associated gas u0lizaon study - millennium...
TRANSCRIPT
IraqAssociatedGasU0liza0onStudy
PerrineToledano,TomRollason,ShayBanerjeeThankyoutoTomMitroforhisreview
Oneofthelargestflarers
Absenceofastronglegalframeworkandinfrastructure
network
Discouraginggaspricingpolicy
AmassivelandmarkprojectforAPGuse
Needformoreinvestmentinpowergenera0oncapacityto
absorbtheAPG
Discouraginginvestmentclimate
Summaryoffindings
S Iraqistheworld’sfourthlargestgasflarerwhilebeingthesecond-largestcrudeoilproduceroftheOrganiza0onofthePetroleumExpor0ngCountries(OPEC).Ithasthe11thlargestgasreservesmainlycons0tutedofAssociatedPetroleumGas(APG).
S Onlyin2011,theIraqiGovernmentproposedprescrip0onsforAPGuseintheFederalOil&GasDraYLaw,butithasnotbeenpassedyet.FlaringisregulatedbythePSAsintheRegionalGovernmentofKurdistanintheNorth.MostoftheflaringishappeningintheSouthwhichisalsowheretheoilexportsaregrowing.Inaddi0on,thereisanabsenceofsufficientgathering,processinganddeliveryinfrastructure,cri0calforAPGuse.
S Iraq’sgaspricingpolicyhasthusfardisincen0vizedtheconstruc0onofgasinfrastructuretoselltheAPGtothedomes0ceconomy.
S However,theBasrahGasCompany,amidstreamgascompanyresponsibleforse^ngupthelargestAPGuseprojectintheworld,hasbenefitedfromgovernmentalsupportforgasprices,withthegovernmentbuyingthegasfromitatamuchhigherpricethanthedomes0cprice.ItprocessesAPGproducedbythreelargeoilfieldsintheSouthintodrygasforpowergenera0on,LiquefiedPetroleumGas(LPG)fordomes0cuseandcondensatesforroadfuels.Itisauthorizedtoexportoncethelocaldemandhasbeenmet.OtherprojectsforAPGusehavejuststartedattheotherbigoilfieldsinsouthernIraq.
S Moregas-firedpowergenera0oncapacityisneededtoabsorballtheAPGproduced,meetthepowerdemandandsa0sfyIraq’soilexportambi0ons.Lowpricesandthesecuritysitua0onaredelayingbothstate-ledandprivateinvestmentingasinfrastructure.
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bcmflared
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Top20gasflarersintheworld(2011)
Sta0s0csonAPGflaring
Onthecompaniesinvolved
S Iraqistheworld’sfourthlargestgasflarer,flaring9.4billioncubicmeters(bcm)ofAPGin2011accordingtosatelliteimaging.
S Wastedgasmaybeashighas12bcmperyear,whichis70%ofIraq’sna0onalgasproduc0on.
S Es0matesputtheopportunitycostofflaringinIraqat$1.8billion.
S AtthefieldofWestQurna1,around150millionstandardcubicfeetperday(mmscfd)areflaredwhichis“enoughtopoweronemillionhomesandproduce16millionLPGcylindersperyear”accordingtoBasrahGasCompany.
Source:NOAAsatellitedata
Thesta0s0csofAPGflaringinIraq:Howbadisit?
Sta0s0csonAPGflaring
Onthecompaniesinvolved S APGproduc0onduringthefirstfivemonthsof2016was2,628billion
standardcubicfeetperday(scfd):84%isfromthesouthernoilfieldswhile16%isfromtheNorthOilCompany’s(state-ownedcompanyinKirkuk)oilfields.
S Outofthisgasvolume,1,714billionscfdwasflared,makingup65%ofthetotalproducedAPG.Mostofthisflaredgas(89%)wasinthesouth.
Thesta0s0csofAPGflaringinIraq:Howbadisit?
Source:IraqMinistryofOilandAhmedMousaJiyad
SouthernAPGproduc?on,u?liza?onandflaringsince2009(mmscfd)
Sta0s0csonAPGflaring
Onthecompaniesinvolved
Thesta0s0csofAPGflaringinIraq:Howbadisit?
S In2015,theIraqigovernmenthasset2022asthedeadlineforzerorou0ngflaring.
S Comparingthe2016resultsforthefirstfivemonthsoftheyear(giveninthepreviousslide)tothepro-ratedforecastfor2016laidoutinthisslide,theflaringresultsare10-12%worsethanthetarget.
Expectedoilandgasproduc?on,useandflaring:past,present,future
Source:IraqMinistryofOil,2015
Thesta0s0csofAPGflaringinIraq:Howbadisit?
Sta0s0csonAPGflaring
Onthecompaniesinvolved
S PartofthereasonforitslargeflaringvolumesowestothefactthatIraqisthesecond-largestcrudeoilproduceroftheOPECandholdstheworld’sfiYhlargestprovencrudeoilreserves.
S Iraq’scrudeoilproduc0ongrewbyalmost1.5millionbarrelsperday(b/d)overthepastfiveyears,increasingfrom2.6millionb/din2011toalmost4.1millionb/din2015.
S Iraq’ses0matednaturalgasreservesare112trillioncubicmeters,the11thlargestintheworldaccordingtotheInterna0onalEnergyAgency–mostlystemmingfromAPG.
Source:EIA,2016
Iraq’stotalpetroleumandotherliquidsproduc?onandconsump?on
Thesta0s0csofAPGflaringinIraq:WhoisInvolved?
S TheMinistryofOilinBaghdadhasawardedlicensesto21Interna0onalOilCompanies(IOC),includingBP,CNPC,Statoil,andShellwhoalldrillinthecountry’slargestfields.
S RatherthanPSA(Produc0onSharingAgreement)contractsthatareofferedbytheRegionalGovernmentofKurdistan,Baghdadofferstechnicalservicecontracts.Servicecontractsmightactasadisincen0vetoinvestinAPGinfrastructure.
Sta0s0csonAPGflaring
Onthecompaniesinvolved
Whatlegalandfiscalframeworkisinplacetostopflaringandincen0vizeAPGuse?
Agencies
Legalframework
Fiscalframework
Governmentins?tu?onsinvolvedinregula?onofoilproduc?on/flaring
Descrip?on
MinistryofOil Hasbroaddiscre0ontoregulateextrac0onofoilandgasintheFederalProvincesofIraqunderOilLawNo.101.Inrecentyears,theMinistryhassetrenewedeffortsinmo0ontoendflaringinIraqandhasestablishedagoalto“endtheburningofgasen0rely”infavorofu0liza0on.In2016,theWorldBankawardedtheMinistrywithacer0ficateofapprecia0onforitsefforts.
Regula?on/PoliciesonGasFlaring/APGuse
Descrip?on
FederalOilandGasLaw
FederalandregionallawsgoverningthepetroleumsectorinIraqaretypicallymul0-layeredandcomplicated,consis0ngofamixoflawsthatarealegacyoftheHusseinregimecombinedwithanewlegalframeworkins0tutedbythenewcons0tu0on.OnAugust25,2011,theIraqiGovernmentproposedtheFederalOil&GasDraYLaw,includingthefollowingprescrip0onsforAPGuse:• Thepetroleumlegisla0onmakesmen0onofAPGandrequiresholders
ofexplora0onandproduc0onrightstoproposeop0malplansforu0liza0onordisposalofassociatednaturalgasintheirFieldDevelopmentPlans.
• Furthermore,allassociatednaturalgasthatisnotusedinpetroleumopera0ons,u0lizedorre-injectedinthefield,istobeofferedfordeliveryfreeofchargetotheMinistry.
• Flaringisonlypermiredforthepurposesofcommissioning,tes0ngofinstalla0ons,safetyprecau0ons,orwhileawai0ngthecomple0onoftransporta0onfacili0es(providedthattheflaredvolumesarekepttoaminimumandMinistryisno0fied).
• Flaringshouldbekepttoaminimumandnotbepermiredbeyondamaximumperiodofoneyear,duringwhich0memeasuresshouldbemadetoeitheru0lizethegasordeliverittoanominatedgovernmenten0ty.
Whatlegalandfiscalframeworkisinplacetostopflaringandincen0vizeAPGuse?
Agencies
Legalframework
Fiscalframework
Regula?on/PoliciesonGasFlaring/APGuse
Descrip?on
KurdistanRegionalGovernnmentofIraq(KRG)
• TheKRGregulatesflaringthroughPSAs.• Therelevantclausefromthe2011PSAsignedbetweentheKRGandRepsol
YPFOrienteMedioS.A.readsasfollows:
“14.6FlaringofNaturalGasisprohibited,except:(a)inaccordancewithanApprovedWorkProgramandapplicablePermits;or
(b)inanemergency.
14.7TheContractorshallsubmitanyrequestforaPermitforflaringtotheGovernment.
14.7.1TheContractormustincludeinsuchrequestforaPermit:
(a)anevalua0onofreasonablealterna0vestoflaringthathavebeenconsideredbytheContractortogetherwithinforma0onontheexpectedamountandqualityofNaturalGastobeflaredandproposeddura0onoftherequestedflaring;and
(b)itsconsidera0onandplansfortakingallcommerciallyreasonablemeasurestoensuretheextrac0onofnaturalgasolineandotherliquidsfromAssociatedGastobeflared.
14.7.2TheGovernmentmayrefusetograntsuchPermitintheGovernment’ssolediscre0on,includingthecircumstanceswheretherequestreasonablyshowsthatflaringwouldbeintheeconomicinterestofthePar0esorisnecessaryfortheproduc0onofPetroleum,andtheGovernmenthasnoimplieddutytoprovideanyPermitforflaring.”• An0-flaringclausesdonotappearinPSAsbefore2006andPSAsthathave
beensignedsince2011arestricterintheirregula0onofflaringthanthosesignedbetween2006and2010.
Agencies
Legalframework
Fiscalframework
Whatlegalandfiscalframeworkisinplacetostopflaringandincen0vizeAPGuse?
Whatlegalandfiscalframeworkisinplacetostopflaringandincen0vizeAPGuse?
Agencies
Legalframework
Fiscalframework
S Alargebarriertou0lizingAPGisthepricingpolicyinIraq,whichactsasaninhibitortothegrowthanddevelopmentofitsgassector.
S AlthoughIraqhashugequan00esofAPGavailableasaby-productofoilproduc0on,thedepressedpriceofgascombinedwithavirtuallynon-existentgastransporta0oninfrastructuremakeinvestmentinthegassectoralow-profitprospect.
S Byraisingthepriceofgas,theIraqGovernmentmaybeabletoincreasetheincen0vetoinvestwhilereducingitsfiscalspending.Ithaslikelyavoideddoingthisduetopoli0calsensi0vi0esandinsteadhasreliedonindividualarrangementswithcompaniestoensureacertainprice:thegovernmentthroughitsstate-ownedcompanySouthGasCompanybuysthegasfromthecompaniesatahigherpricethanthedomes0cmarketandresellstothedomes0cmarket.
S Forexample,theBasrahGasCompanyproject(detailedinthefollowingslides)wascreatedwiththesellingpriceofAPGpeggedtothepriceofoil:thedrygassalespriceisadirectderiva0veoftheHeavySulfurFuelOil(HSFO)price,whichinitselfisbasedoncrudeoilprice.Itfollowsthefollowingformula:([crudeoilprice/tonconvertedtoHSFOprice/ton]X[reduc0onfactor]/[hea0ngvalueof1tonHSFO].
S ForacrudeoilpricebetweenUS$75and$100itmeansadrygaspricebetweenUS$3.20toUS$4.30perMmBtu.Forthesamerangeofcrudeoilprices,othergasintheMiddleEastissoldataround±US$2.0-2.5.InIraq,theindustrybuysthedrygaspriceat$1.2/MmBtu.
S TheIraqGovernmentbearstheburdenofprovidingthisar0ficialpricebycoveringthedifferencebetweenthedomes0cgaspriceandthenego0atedpricewithBGC.
Whatpowerneedscouldtheflaredgassa0sfy?
S Ironically,whileIraqflaresasubstan0alpor0onofAPG,itactuallyimportsgasfromneighboringIran.
S Inaddi0onduetoalimitednumberofgas-firedpowerplants,crudeoilhasbeenincreasinglyburntatpowersta0onsdeprivingthegovernmentfromexportrevenues.
S Thecurrentpowergenera0oncapacityof13gigawars(GW)onlymakesupforapproximatelyaquarterofthedemand(42GW)andtheoilandgasindustryisthelargestconsumerofelectricity.
S ManyIraqisruntheirowngenerators,whichaccountsforroughly8%ofthena0on’selectricitygenera0ondespitebeingextremelycostly.Costscanbeasmuchas$1000permonthforhouseholdelectricity,whichrepresents1/6ofaverageannualincome.
S AccordingtotheIEA,reduc0oningasflaringalongsidethedevelopmentofnewgasfieldsisbecomingfundamentaltomeetbothexportambi0onsandgrowingdomes0cneeds.
S NewpowerplantsthatwillusetheAPGasafuelsourceforelectricitygenera0onareneeded:In2013,Shelles0matedthatconver0ngthewastedgasintoelectricitywouldgenerate4.5GW—whichcouldcovertheneedsofabout3millionhomes.
Source:EIA,2016
Powergenera0on
LPGandcondensates
Crudeoilburntatpowersta?onsinIraq(thousandbarrelsperday)
WhataresomecurrentAPGuseprojectsthatcouldserveasablueprintforfutureprojects?
S In2015,themid-streamgascompany,BasrahGasCompany(BGC),wasawardedtheWorldBank’sGlobalGasFlaringReduc0onPartnershipExcellenceAward.
S BGC,ajointventurewithSouthGasCompany(51%),Shell(44%)andMitsubishi(5%)setupin2011,processesAPGproducedbythethreehugeoilfieldsinsouthernIraq–Rumaila,ZubairandWestQurna1,andturnsitintodrygasprimarilyforpowergenera0on,LPGfordomes0cuseandcondensateforroadfuel.BGCisthereforeamidstreamgascompany.
S The25-yearprogrambeingundertakenbyBGC,valuedat$17billion,isboththelargestgasprojectinthehistoryofIraq,andthelargestflarereduc0onprogramintheworld.ThecurrentoilpricedropisslowingdowntheplansoftheIOCsinvolvedinthejointventureandsomeprojectshavetobeputonhold.
S Inaddi0on,theabilityofthegovernmenttoinvestinthisprojectandfinanceitspartisinques0onata0meoflowoilprices,thereduc0onofnorthernexportsandhighexpenditureinthecampaignagainsttheIslamicState.
Powergenera0on
LPGandcondensates
APG-usecasestudy:BasrahGasCompany
S BGCstartedopera0onsin2013.Atcapacity,BGCwillbuyupto2billionscfdofAPGfromthethreeoilfields.Itisasoftodayprocessingmorethan600mmscfdofgas.Therehabilita0onwork(withouttheexpansion)oftheinfrastructureshouldleadtoaprocessingcapacityofaround1.3billionscfd,whichwillcapture80%oftheAPGproducedbythethreefields.
S BGCoperatesmorethan1800kmofpipelinesandninecompressionsta0onsthatitasbeenrehabilita0ng.BGCisadding300kmofpipelinesandthreenewcompressors.
S BGCalsooperatestwogasprocessingplantsthatarealsounderrehabilita0on.IntheNorthRumailaplan,aYertreatmentandsepara0onfromtheliquids,thedrygasisdirectlysuppliedtoSouthGasCompanythatthenmakesitavailableforlocalpowergenera0on.ThenaturalgasliquidsaresentbypipelinetotheKhorAlZubairplanttobefurtherprocessedintoLPGandcondensate.ThesearethenpumpedtotheUmmQasrStorageTerminal,wheretheyareblendedwithimportsofhighoctanegasolineandLPGandthendeliveredtoSouthGasCompanyfordistribu0onintothelocalmarket,tovariousborlingplantsandtoroadtankerfillingsta0ons.
S Last,BGCoperatesthemarineterminal,comprisedoftwomainje^eswheretankersdock,andasmallerservicejeryforsmallvesselsthatisnowdevelopedbyBGCintoanewjeryforexport/importofLPGtomeetfuturerequirements.
S Theinfrastructureinplaceisstate-ownedandoYen30yearsold.Yearsofconflictsandsanc0onshavedelayedtheirfullupgradingandu0liza0onun0lnow.
Powergenera0on
LPGandcondensates
APG-usecasestudy:BasrahGasCompany
S Itises0matedthataround70%oftheelectricitygeneratedinBasrahprovincein2015and60%to70%ofthealltheLPGconsumedinIraqwasprovidedbythegasproducedfromtheproject.
S ThecontractallowsBGCtoexportthegasascondensatesandalsoLPGoncelocaldemandismet.LPGproduc0onisnowat3,300tonsperday.
S InMarch2016,thefirstcargoofAPGconcentrate(veryhighAPIoilingasformthathascondensedwhenrisingtothesurface)ofapproximately10,000cubicmeterswasexportedbyBGC.TwocargosofLPGexportsfollowedsoldat$350/ton.Reportedly,theexportsreceiptswereearmarkedtotheIOCpartnersinthejointventureaspaymentfortheirpastarrearsatendof2015.
Powergenera0on
LPGandcondensates
Source:MitsubishiSource:LNGWorldNews.com
OthersmallerAPG-usedevelopments
Powergenera0on
LPGandcondensates
S Al-Ahdaboilfield:supplies70mmscfdtotheWasitprovincepowersta0onsandLPGofmorethan240tonsperdayasofMay2016.
S Mejnoonoilfield:agasprocessingsta0on(withacapacityinthefirstphaseof70mmscfd)inauguratedinApril2016providesgastoRumailagas-firedpower-plant.Thispowersta0onwillbecompletedin2017andwillgenerateupto235megawars(MW)perdayatpeakefficiencyduringwintermonthsandaminimumof150MWinthesummer.
S Gaspipeline:inApril2016,theMinistryofOilinaugurateda$150millionliquefiedgaspipelineprojectforthetransporta0onof3000to4000tonsperdayofgasfromproduc0onloca0onsinKhorAl-ZubairtothegascomplexinThi-Qarprovince.
S GEandIraqMinistryofOilhaveagreedtopartneronasolu0ontoreducegasflaringinIraqioilfieldsanduseitforpowergenera0onwithinabroaderpartnershipbetweenGEandtheMinistryontheop0miza0onoftheMinistry’spowerassetsaswellasmanagementsystem.GEsolu0onscouldaddmorethan200MWpersiteandrecoverseveralthousandsofbarrelsperdayofLPG.
S Thecon0nuousunsteadysecuritysitua0onmightlimitaddi0onalinvestmentinlonggaspipelines,inaddi0ontothoseofBGC,giventhehighvulnerabilityofgaspipelinestosabotageduetotheirhighpressureandthevola0lityofgaswhenreleased,aswellasthedifficultyinopera0ngmaintenanceworkonboththepipelinesandcompressors.
S AlFathi,Saadallah.“Iraqhaslostbillionsfromgasflaring.”GulfNewsAnalysis.Feb.15,2015
S Al-Khateeb,LuayJ.“NaturalGasintheRepublicofIraq.”HarvardKennedySchool.Nov.18,2013.
S AlKhareeb,LuayJ.“RAQGasFeedstockAssessmentForPower,Petrochem,Industries,OilOpera0onsandExport.”Presenta0on.IraqEnergyIns0tute.Feb.2013.Availableat:hrp://www.iraqpetrochem.com/files/presenta0on/04%20Luay%20Jawad%20Al%20Khareeb.pdf.
S AlMonitor,“DogascondensateexportsrepresentnewbeginningforIraq'shydrocarbonindustry?”March2016.
S BasrahGasCompany.Website.Availableat:hrp://www.basrahgas.com/.
S Bur,Gerald.“Iraq’sAlial-Saadypostponesflaringrule.”PetroleumEconomist.Nov.18,2015.
S Chazan,Guy.“Shell-backedIraqi$17bngasprojectgetsunderway.”FinancialTimes.May1,2013.
S Devine,RichardandSafwanAl-Amin.“OilandGasRegula0oninIraq:Overview.”Prac9calLaw.Sept.1,2014
S TheEconomist.“NotYetSwitchedOn,InAnyWay.”March23,2014.
References
S GlobalGasFlaringPartnership.“GuidanceDocument–FlaringEs0matesProducedbySatelliteObserva0ons.”Availableat:hrp://siteresources.worldbank.org/INTGGFR/Resources/Guidance_Document_Flaring_Es0mates_Produced_by_Satellite_Observa0ons.pdf.
S Interna0onalBusinessPublica0ons.IraqBusinessLawHandbook.Vol.1.2015.
S IraqBusinessNews.“ListofInterna0onalOilCompaniesinIraq.”Availableat:hrp://www.iraq-businessnews.com/list-of-interna0onal-oil-companies-in-iraq/.
S Jiyad,AhmedMousa.“MidyearReviewoftheIraqiUpstreamPetroleumSector.”May2016.
S Kent,Simon.“CondensateandLPGExportsCon0nue.”IraqBusinessNews.Aug.22,2016.
S OilFieldTechnology.“GEOil&GassignspartnershipagreementwithIraqMinistryofOil.”April26,2016.
S RebuildingIraq.“BasrahCompanyWinstheWorldBankGlobalGasFlaringExcellenceAward.”Oct.3,2015.
S Repsol–Kurdistan2011PSA.hrp://www.resourcecontracts.org
S U.S.EnergyInforma0onAdministra0on.“CountryAnalysisBrief:Iraq.”April28,2016.
S Willems,SimonDaman.“Iraq’sBasrahGasCompanysetsambi0ousproduc0ontargets.”GulfNewsEnergy.Sept.13,2016.
References